Submission #2: Four Tip$ to Combat a Cash Flow Crunch

SBEs are touted as the growth and job creation engine for the world’s economies. Although championed as the desired model; SBEs barely exceed a 50% survival rate after 5 years of operation.

The reasons behind their failures are complex and varied. However, evidence points to a lack of financial management and adequate cash controls as one of the primary reasons.

This article focuses on one of the key pillars of strong financial management:  Cash Flow Management. Simply put, cash flow analysis examines the timing of the intake of revenues against the outflow of expenses.

Business owners must avoid the following 4 traps:

  1. Lack of Insight into Financial Performance:

Many owners delegate the task of financial management.  However, understanding financial reports such as cash flow budgets are important to providing early detection of potential cash problems requiring corrective actions. Variance analyses should be conducted on all line items with +/- 10% deviation. Entrepreneurs should establish a balanced financial scorecard for their business, including cash flow measurements as a key metric of measuring their businesses health.

  1. Poorly Managed Accounts Receivables:

“Cash is king” is a familiar refrain.  Incentives like Early Payment Discounts should be part of the payment terms offered to customers—especially customers who comprise a significant percentage of AR.

  1. Heavy Investment in Non-Cash Bearing Resources:

SBEs often allocate disproportionate amounts of money to expense items such as salaries, furniture, space, marketing collateral and operating expenses tying up large amounts of cash better used to cover operating expenses.

  1. Maintaining Large Cash Balances:

Small firms can often become too risk averse and maintain large amounts of cash which could be invested to earn  a rate of return which could be used to weather changing business conditions.  

Entrepreneurs experience these problems when they don’t maintain a focus on their income, receivables and payables. Many are left wondering how they went out of business even though customers and revenue were growing.

When faced with cash flow challenges, business owners need to immediately take proactive measures to shore up their cash position. 1. Identify and cut fixed cost expenses, 2. Renegotiate payment terms with major suppliers, and 3. Seek help from banking institutions and/or other sources of funds (A/R Factoring, business partners, customers, “angel” investors, family, friends, etc.).

Establishing a successful business is not a spectator’s business and inaction is the surest way to complete failure.

Carol Phelps, CMC, MBA
CEO
cdp124@aol.com
Global Financial Analytics
404 629-1314
404 790-5980 cell
www.globalfinancialanalytics.com

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About Dan Gallo

I'm a small business lifer, starting/running businesses since I sold seeds door-to-door as a kid in The Bronx. I've played guitar and enjoyed baseball since I was 5 (born a NY Yankees fan). Just prior to marrying Kim in 1983 I became a Christian. We have two sons; Daniel's a musician & social media expert with a smart, insightful sense of humor, and Adam who recently graduated from Brooklyn College double majoring in Creative Writing/Literature and Anthropology. Adam now works in the non-profit sector. Since 2002 one thing we love to do together is go on service/missions trips to Belize. We've collectively spent 60+ weeks in Belize with this missions organization http://twaw.org. I started my 1st company in January 1985, and been self-employed ever since. I sold my last company, Mentor Communications Group, in '04. After 2 years w/ the acquiring company I started The Allasso Group, LLC doing Small Business Consulting, Fund Raising/Capital Raise-up Campaigns, Sales Strategy, Outsourced Sales Agency work, & Digital Marketing Programs (Social Media, SEM, etc.) since April 2006. Notable projects: Hired as Small Business Advocate and Social Media Director for IBM's "Supplier-Connection" - Feb '11-Dec '13. Hired as COO to help turn-around late stage start-up software company myVRM. Jul12-Dec '13 Hired as CEO of CoupleWise.com, a Digital Health2.0 app, to write business plan, raise seed capital, & completely redesign and relaunch the app. Aug '16 I won a Finalist spot for MassChallenge UK's 2016 fall cohort in London from Sept thru Nov. Started Oct15 - Current. I enjoy helping turn-around struggling small businesses, and launching new business ventures. Feel free to contact me with opportunities.
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